What is an Asset?

Slide showing various assets as an example

Meaning and Definition:

The dictionary meaning of the word ‘Asset; is a useful or valuable thing or person. In accounting parlance, however, person is kept outside the scope for the present, animals and plants are included though, and includes all things living or non-living, tangible or intangible, valuable rights and so on.

Another way defining is, what is owned is an asset and what is owed is a liability.

Assets are employed in the business either for a short time as stock-in-trade - that is meant for further sale, or for the long-term use for producing the goods and services.

In the double entry system of accounting, universally practiced, assets have a debit balance. Therefore all items appearing in the balance sheet and having a debit balance are assets.

Examples:

Tangible	Intangible	Living	Moving
Land	Bank Balance	Trees	Trucks
Buildings	Goodwill	Grass	Cars
Plant	Brand Value	Cattle	Ships
Machinery	Mining Right	Poultry	Aircraft
Cash	Software	Fish	Trains
Inventory	Receivables from customers	Horses	Motorcycles

Conclusion:

Assets are useful and valuable things, owned by the business and employed either for short-term as stock-in-trade or long-term as fixed assets.

Further Reading:

• Current Assets
• Fixed Assets
• Tangible Assets

What is a Profit and Loss Account?

Business man celebrating profits earned from the factory 

Meaning:

The purpose of a business is supply goods and services to meet the needs of the society and in the process earn a little over and above what it spent. This extra sum the business earns is called profit. Profit is essential for the business to reward the owners/ shareholders who have invested their money in the business in the form of dividends, to set aside a tidy sum for the rainy day and for expansion and growth.

A business is said to have made a profit when sales, service and other income exceed the value of goods and services consumed. Similarly if the cost of producing the goods and services is more than the income, the business is said to have made a loss.

The profit and loss account lists all the revenues and incomes and various expenses and finally discloses the profit or loss made by the organization.

Example:

	M/s.Old & Conservative Ltd.	M/s.New & Extravagent Ltd.
Sales	1500.00	1520.00
All Costs & Expenses before Depreciation, Interest, Tax and Appropriations	800.00	1410.00
EBDITA	700.00	110.00
Depreciation	30.00	100.00
Earnings after Depreciation but Before Interest, Tax and Appropriations (EBITA)	670.00	10.00
Interest	0.10	70.00
Earnings after Depreciation and  Interest but Before, Tax and Appropriations (EBTA or EBT)	669.90	-60.00
Non-Operating Income	300.00	50.00
Profit Before Tax (PBT)	969.90	-10.00
Corporate Income Tax	320.07	0.00
Net Profit or Profit After Tax (PAT)	349.83	-0.10

The example shows that M/s.New and Extravagant Ltd.’s costs exceed the incomes and as a result it has ended-up with a loss.

The profit and loss account is one of the three important financial statements, the other two being the balance sheet and cash flow statement.

The profit and loss account covers transaction for a certain period – say a month or a quarter or an year.

Conclusion:

To sum up, the profit and loss statement is a vital financial statement that shows the profit or loss made by the company during a certain period. It also explains the changes in the balance sheets or statements of affairs drawn-up on two dates and thus is a supporting document to the balance sheet.

Further Reading:

• Depreciation
• EBDITA
• EBITA
• EBT
• PAT